What Are Cash-Intensive Businesses, and How Are They Connected to Money Laundering?
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Explore the cash-intensive business and its connection to money laundering. Understand how businesses handling large amounts of cash are vulnerable to illicit activities.
Cash-intensive businesses are businesses that depend on cash transactions for a significant portion of revenue. These businesses are very attractive targets for illegal activities like money laundering, and these companies handle a lot of physical cash every day.
Money laundering is how money gets ‘washed’ from its illegal origins through legitimate businesses, which criminals like to use. Industries that primarily deal in cash are particularly at risk of such activities.
This article discusses what a cash-intensive business and money laundering and how one can prevent oneself from getting associated with illegal schemes.
What Is a Cash-Intensive Business?
A cash-intensive business meaning a business in which a lot of the sales are made in cash. Common examples are restaurants, bars, car washes, beauty salons, retail stores, and any type of establishment where there are several transactions on a cash basis. The reason cash transactions are increasingly difficult to trace is they have no documented digital footprint at all. This allows people to carry out illicit activities such as money laundering.
Large amounts of cash are handled regularly, which allows money laundering schemes to thrive. Such businesses that are usually involved in money laundering accept ill-gotten proceeds and convert them into the trappings of legality by disguising ill-gotten proceeds as legitimate income in a number of ways.
Bonus: With changing times and with businesses dependent more on cash, the need to keep up with the new tricks employed by money launderers in cash-heavy industries is essential to preserve business integrity and compliance with the international money laundering standard.
How Cash-Intensive Businesses Can Be Vulnerable to Money Laundering?
For several reasons, a cash-intensive business in money laundering is an ideal environment.
- High Cash Volumes: Businesses that deal with large cash volumes generally generate more illicit money without much suspicion when it is mixed with legitimate earnings.
- No Record: Because cash transactions are not usually documented electronically, it’s less easy for regulatory authorities to monitor and verify them. This amounts to a lack of traceability of funds into the business, and criminals can make use of this, introducing illicit funds into the business along with their ‘legitimate earnings.
- Rapid Conversion: The illicit cash can reach deep into the financial world, even penetrating its system.
- Fake Sales: It may have driven some businesses to fake sales to pull illegal money into the system and report them as revenue. The scale of money laundering is still staggered globally.
The 2024 Global Financial Crime Report from NASDAQ shows that $3.1 trillion in illicit money flowed through the global financial system in the last year. This enormous amount implies the importance of strong transaction monitoring and compliance measures in cash-intensive sectors.
Common Cash Intensive Business Schemes in Money Laundering
Criminals have many schemes of laundering money in cash-intensive businesses. These include:
- Overstating Sales or Revenue: This states that business expenses are being made or false accounting is being used to hide the source of illegal or unreported cash recognized by the business.
- Underreporting Sales: If the business underreports sales, it could be because it doesn’t want to disclose how much it is hiding. The cash could instead be used to pay employees or engage in some other illegal activities.
- Layering: Layering involves moving money through multiple businesses to obscure the origins of that money. Take, for instance, an illegal criminal who deposits illicit funds through many cash-intensive business schemes before they can be deposited into a bank account.
- Breaking transactions: This is also referred to as ‘smurfing,’ where bulky amounts of money are splintered into smaller amounts to be arranged in different places to avoid detection.
Risk Factors for Money Laundering in Cash-Intensive Businesses
Some of the factors that make cash-intensive businesses more vulnerable to money laundering activities include:
- High Cash Turnover: Businesses such as casinos, strip clubs, restaurants, etc., deal with large amounts of cash on a day-to-day basis.
- Lack of Strict Accounting Measures: The missing internal controls in a business make it susceptible to manipulation by anyone with intentions to launder money.
- Financial Transparency: A lack of transparency in a company’s financial dealings makes it easier to hide suspicious transactions.
In 2024, the banking sector was subjected to $3.2 billion in AML-related fines globally. The finances of banks and other money laundering-related businesses are increasingly susceptible to these kinds of penalties because, in many cases, they are cash-lead organizations and are used as a conduit for conducting illicit transactions.
Knowing the risks and taking necessary steps to prevent a business from being involved in illicit activities should be a top priority for businesses. To keep their balance, business owners should stay vigilant, take responsibility for complying with regulations, and invest in effective financial controls to prevent money laundering and their business from getting legal and reputational damage.